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Protecting our Families: Risks and Benefits (over-50s)

April 25, 2013 by Edge Financial Planning

We insure our cars, our homes and our furniture. So why do so few people protect their most important asset of all — their ability to earn an income? We like to think we put our families first but most Australian families are at risk.

Research shows most Australian families are underinsured, putting their financial security at risk. The good news is that taking out extra insurance through your super fund can be easy and affordable.

Many super funds offer members automatic life insurance, payable on death and Total and Permanent Disablement (TPD) insurance, payable following diagnosis of a terminal illness or catastrophic injury.
As an option, some funds also offer income protection insurance, which insures your income.

If you’re like most Australian families, your take-home wage is what keeps your world turning. Without it, you’d find it impossible to pay the mortgage, school fees and day-to-day bills. In fact, according to the Australian Bureau of Statistics, average Australian families are using around a third of their income to service their mortgage alone.

Losing your income — what are the risks?

When you’re young and healthy, it seems impossible to believe you could be laid low by serious injury or illness — but statistics show that it’s more common than you might believe.

For example, one in two Australian men, and one in three women will be diagnosed with cancer by the age of 85, while two out of every three families are affected by cardiovascular disease.
Every week, accidents claim over 100 lives and cause many more serious injuries.

While these days, many people survive serious illnesses and injuries, recovering can require extensive recuperation and time off work — and the consequences can be severe. For example, if you’re off work for an extended period you may not be able to meet your mortgage payments or schools fees, risking disrupting your children’s education and friendships. You almost certainly would need to make adjustments to your family’s lifestyle to reduce the amount you need to spend.

The benefits to our Families: Income protection

Income protection insurance is one way you can protect your family’s lifestyle from a sudden loss of income. It pays a regular benefit to help replace your salary, so you can keep up with important bills and meet your living expenses.

Depending on your policy, it may pay up to 75% of your regular income to age 65 — although some policies offer more. Premiums are generally tax deductible, helping to make them more affordable. And you’ll have the peace of mind of knowing a temporary medical setback won’t become a permanent financial problem.

Insurance through Super

If you’re in an employer-sponsored super fund, you may be able to access affordable income protection insurance as part of your super plan.

One advantage of getting insurance through your super is that it can be very cost-effective. This is because your plan may receive a bulk discount, and premiums are deducted from your account, not paid for with after-tax income. Depending on your plan, your employer may also pay for some or all of your premiums.
Another advantage is that it can be simple to apply, with many plans offering pre-approved cover without a medical test.

However, with insurance through super, the default cover you’re entitled to may be limited, or have restrictive conditions in place. For example, the maximum claim amount may be less than you need, or the payout period could be shorter. And if you want to apply for more than the default, you may need to provide detailed medical records and go through the full underwriting process before your cover is approved.
To help make sure that you have the right cover for your family, you may choose to top up your employer super cover with a personal insurance plan.

Talk to your adviser

Your financial adviser can help you build a cost-effective and appropriate risk protection portfolio. Contact us to discuss your insurance needs today.
1 Australian Bureau of Statistics, Housing Finance, March 2012, Release 5609.0.
2 The Cancer Council Australia, www.cancer.org.au, February 2012
3 The Heart Foundation, www.heartfoundation.org.au, February 2012
4 Australian Bureau of Statistics (2003): Injuries and Deaths due to External Causes

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Like many Australians, you’ve probably accumulated
a number of different Super accounts from various employers over the years. Perhaps you even have Super from past employers that you’ve forgotten about... read article